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While most Californians watched the votes tallied for the presidency, a startling upheaval occurred right under our noses: Democrats captured absolute two-thirds majorities in both houses of the state legislature, a feat not managed since the passage of Proposition 13 in 1978.

What does a ballot proposition from more than 30 years ago have to do with last week's elections? Almost everything.

Most people remember Proposition 13 for the provision that slashed local property taxes by about 57 percent, strapping local governments and increasing the burden on the state to help fund local programs and services.

But another provision required that state taxes could not be increased without an absolute two-thirds vote of both houses of the state legislature--the highest threshold of its kind in the nation.

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The term "absolute" is important for it, too, has been a source of confusion. An absolute two-thirds majority requires approval from two-thirds of the legislators in both houses, or 54 in the 80 member Assembly and 27 in the 40 member State Senate.

While Democrats have enjoyed healthy majorities for most of the time since Proposition 13, they have never reached the absolute two-thirds threshold.

Sometimes, one single Republican in either house has been enough to thwart control, requiring massive negotiations and significant compromises.

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That's what happened in 2009, when facing a huge budget deficit, minority party Republicans refused to go along with the revenue and spending package until Democrats agreed to a more than $1 billion dollar corporate tax loophole that voters eliminated via Proposition 39 last week.

Now the Democrats are in the rarefied political atmosphere where they can operate unfettered. The question is, what will they do?

Democratic leaders can take the legislature in a number of directions.

They may streamline some regulations to shore up tense relations with business interests.

Alternatively, they may speed up the first links of the state's ambitious high speed rail program, particularly considering the re-election of Barack Obama.

But the most important policy area for the Democrats will exist in the realm of taxes.

Currently, the state relies on the progressive income tax for more than sixty percent of its general fund--a percentage that will increase somewhat in the short-term with passage of Proposition 30 last week.

This proportion is neither sustainable nor desirable. Other sources must be tapped in order to decrease the reliance on a single source.

One idea is to tax oil as it comes out of the ground; California is the only oil-producing state (fourth
largest in the nation) that does not do so.

Another possibility is to broaden the sales tax, which currently applies to only about 40 percent of all goods and services produced in the state.

Along these lines, "sin" taxes on liquor, beer and wine have not been touched for decades. California also ranks 33rd in tobacco taxes.

Still a third possibility might be to alter Proposition 13 by passing a statewide property tax for businesses which, in many cases, have paid the same amounts since 1978.

Which of these or other possibilities will be embraced remains to be seen in this rare moment that is virtually guaranteed at least until elections in 2014.

Still two facts are clear. First, the Democrats need to be careful not to go so far that they upset those who put them in this exalted position. And second, the Democrats should not take fellow Democrat Jerry Brown for granted as an automatic ally, given Brown's penchant to not raise any
taxes without voter approval.

Nevertheless, California is now at a cossroads. The direction taken by the state legislature over the next twenty-four months may tell us much about the state's future. This political chess game should be interesting to watch.

Larry Gerston teaches political science at San Jose State University and is the political analyst for NBC Bay Area.